The business behind the show

Universal keeps peace with Redbox, spurning Warner Bros.

March 1, 2012 | 2:04
pm

Universal Pictures has decided not to join forces with Warner Bros. in that studio's war with Redbox.

Universal, the studio behind "Safe House" and this weekend's "The Lorax," on Thursday announced an extension of its deal with the DVD rental kiosk company through August 2014 that will maintain the current 28-day wait from when DVDs go on sale until consumers can rent them from Redbox.

The news comes two months after rival studio Warner Bros. said it would only sell discs to Redbox if it agreed to double the length of the so-called rental "window" to 56 days. The Illinois-based company refused and is now buying Warner DVDs directly from retailers at a higher price than it would have paid the studio.

Executives at both Warner and Universal believe that delays on DVD rentals from Redbox, as well as from Netflix, incentivize consumers to buy the discs or rent films via video-on-demand. Both of those transactions are significantly more profitable to studios than kiosk rentals, which cost just $1.20 per night.

As a result, Universal had wanted to follow in Warner's footsteps and extend the delay on its movies to 56 days, said a person familiar with the thinking of executives at the studio who was not authorized to speak publicly. But Universal ultimately concluded that trying to force the issue could actually harm its bottom line, the person added.

The reason: Redbox has been successful in stocking its 35,400 kiosks with recent Warner releases such as "A Very Harold & Kumar 3-D Christmas" and "J. Edgar" in as little as a week after they went on sale. Universal executives concluded that rather than seeing their movies become available in Redbox's kiosks earlier than they currently are, it was better to stick with the current arrangement.

Galen Smith, senior vice president of Redbox, said his company is still making a profit on the Warner discs it buys at retail and is prepared to continue with its current arrangement indefinitely. The company presumably would have taken the same approach with Universal, as Smith made clear that a wait longer than four weeks is not acceptable to Redbox.

"In order to have a strong relationship with a studio, we're willing to extend to 28 days, but we think that is the right amount for our business," he said.

Universal's decision is sure to frustrate executives at Warner Bros., who are tolerating a battle with Redbox that hurts their studio's bottom line because they are standing on a principle that they believe will be beneficial in the long run. If Universal had held its ground on the 56-day window, it might have increased the pressure on Redbox to cave.

Twentieth Century Fox's deal with Redbox, which also includes a 28-day delay, expires in 2013. Walt Disney Co. Chief Executive Bob Iger recently said his studio intends to implement a 28-day delay soon as well. An agreement with Sony Pictures, which lets Redbox rent discs the same day they go on sale, expires in September.

Universal's agreement with Netflix expires in April. Warner successfully convinced Netflix to implement a 56-day delay on renting its DVDs through the mail. However, because it kept the 28-day window with Redbox, Universal may not be able to convince Netflix to accept a longer wait.